The International Swaps and Derivatives Association, Inc. (ISDA) today launched its ‘Small Bang Protocol’ and Restructuring Supplement, which allows for the incorporation of auction settlement terms following a Restructuring Credit Event into standard CDS documentation.
The adherence period for the Protocol will run until Friday, July 24. The market practice changes set out by the Protocol will take effect on Monday, July 27.
“The ‘Small Bang Protocol’ is an additional step towards achieving increased standardization, transparency and liquidity in the industry and facilitating central clearing of CDS,” said Robert Pickel, executive director and chief executive officer, ISDA. “The ability to hold an auction for any credit event that may occur is a critically important piece of the continuing enhancement of the CDS business.
‘Small Bang’ for the existing trade population, together with the Restructuring supplement for trades going forward, is the latest in the ongoing series of documentation and market practice changes to the trading convention for CDS. Other market practice changes, which took effect on June 22, include the adoption of fixed coupons, payable up-front for European trades, and a move from monthly to quarterly ‘roll’ dates in emerging market CDS transactions.
In a June 2 letter to the Federal Reserve Bank of New York, ISDA and the industry expressed a "firm commitment to strengthen the resilience and robustness of the OTC derivatives markets." The letter also highlighted the fact that ISDA and the industry are on course to implement changes to risk management, processing and transparency that will significantly transform the risk profile of these important financial markets.
As part of its educational initiatives relating to these changes, ISDA is hosting press briefings in London and New York on Wednesday, July 15 and Thursday, July 16 respectively. The briefings will offer reporters an opportunity to discuss with the architects of these key amendments the role that the changes will play in the future direction of the CDS industry. The briefings will be followed in each case by a symposium: Credit Derivative Market Practice Changes.
This educational effort is supplemented by a webcast outlining key points of the ‘Small Bang Protocol’ and Restructuring Supplement. The webcast, which includes a brief slide presentation, discusses the implementation of auction settlement following a Restructuring Credit Event, and is available at http://secure.webex.com/g2.asp?id=SNOE95M2.
The text of the Protocol and form of adherence letter, guidance on the mechanics of the Protocol, and answers to frequently asked questions are available at www.isda.org.
